I have been angel investing for 6 years. Last month (July 2020), I made enough exits to break-even. This means my portfolio (60+ startups and funds) is now on a “free ride”. It feels magical! On top of that, I still have most of the initial cash to invest again.
Now, this result is not super spectacular in the venture investing world because I have yet to hit my first 100x and 1,000x return. I only have some 2–10x exits but I am working on it!
It actually takes luck and effort to angel invest with style. Naval Ravikant, who has successfully invested (often first cheque) in many unicorn startups like Twitter, Uber, Thumbtack, and Postmates… describes this process the best:
I’ve thrown a lot of darts. I don’t necessarily take credit for it. Some people might say they were very thoughtful and did a lot of diligence. You know, some of it was luck. A lot of it was luck.
Angel bets and venture bets are great because they have nonlinear outcomes in the positive, but on the downside you can only lose 1x (where x is your investment). On the upside, you can make 10,000x.
As an investor, my system is: I want to see 10,000 companies and I want to pick 500 that have a shot of being huge. Then I want the option to double down on the five winners. I don’t want to just look at 100 companies and pick 10 that I think are winners and go all-in on those. I don’t think I have that capability.
I don’t think I have that capability either. I have never worked in a big company and I can’t read financial statements, and what do I know about running a business? However, I think I am great at reading people and I am an optimistic believer; which may be my real edge.
I don’t have a big fund, so when I find a startup that I believe in, I often need to convince other people to invest in it too. This involves developing a pitch with the team and talking to over 100 rich people and eventually convincing 10 of them to co-invest with me. Over time, I have become really good at doing this.
To me, a good angel investor needs to do 4 things well:
- Believe, and invest in many deals with minimal due diligence (DD).
- Help them find more money (customers, partners, investors).
- When the winners emerge, quintuple-down and invest more.
- Brainwash people that you are very good at this, ideally on Twitter 😅.
But this process doesn’t scale. As more people are brainwashed by me on Twitter, my deal flow also becomes stronger. As I become richer (on-paper), I also become lazier. Luckily for me, I have found ways to keep myself accountable.
I met Ben Armstrong and Quentin Wallace at the Startmate accelerator program (best program in town, in my opinion 😇). Being a Startmate mentor is one thing, but if you ask my friend, Alfred Lo, being voted a Startmate MVP mentor is on a totally different level. (PS: Everyone mentioned in this paragraph has won an MVP at least once).
So, I started working with Ben and Quentin more, and before you know it, we have done 7 deals together. Ben has been carrying a lot of weight on the DD side for me, and Quentin closing deals and finding new investors. Now I have a team that I can rely on to close deals quickly. I can focus on what I do best, finding great startups to believe in.
As a result, Archangel was born with grant money from LaunchVIC. We aim to connect good early stage deals with good money, fast. The big 3 venture funds have recently raised over $1 billion of dry powder to invest into startups. Someone has to do the hard work to feed them the great deals.
Join us at https://www.archangel.vc/ (Twitter). #firstBeliever
(I will talk about my other accountability buddy group #LTG #LongTermGreedy next time 😉)
